Someone should institute an annual 4 June review of the Chinese, European and American models. Why 4 June? Because on that day in 1989, the European and Chinese paths out of communism definitively diverged. I will never forget standing in a newspaper office in Warsaw, amid the exhilaration of Poland's first semi-free election since the imposition of ­communist rule, and feeling my stomach turn as I watched the pictures of dead or wounded protesters being ­carried out of Tiananmen Square.

Twenty years on, we have two sharply contrasting, imperial-scale models, Chinese and European. Both are unprecedented, complex and evolving; both are products of what happened in 1989. Their strengths and weaknesses are in many ways contrasting. The American system, meanwhile, though in fundamentals much less changed by that year, has gone through a cycle from hubristic overreach (the neocons' "unipolar moment") to traumatic retrenchment (General Motors, RIP), which itself had a lot to do with the United States' sense of world-historical triumph at the end of the cold war.

It's interesting to observe this moment from Riga in Latvia, an ­eastern corner of the European Union which 20 years ago was still part of the Soviet Union. As a newly sovereign, ­independent state, Latvia seized its chance to join the pluralistic, voluntary empire that is the EU, as well as the American-led security alliance that is Nato. Latvia is a democracy, albeit of a messy post-communist kind. Its streets are plastered with posters for the local and European elections. People can choose their representatives.

Yet Latvia is going through especially hard times in this worldwide crisis. A local credit-fuelled boom has been ­followed by a most ­spectacular bust. The prime minister, Valdis ­Dombrovskis, tells me that six months ago the forecast for year-on-year decline in GDP was 5%; now it's 18%. Imagine your economy shrinking by nearly a fifth in one year. Public expenditure is being slashed, with civil servants seeing their salaries cut by up to 50%. I ask the phlegmatic PM whether, at some point, this contra-Keynesian shrinking of public expenditure will not feed into a vicious downward spiral for the whole economy. Maybe, he replies, with ­something close to a sigh; maybe it's already happening. But what can poor Latvia do, when it is so dependent on international loans, and hence on ­conditions negotiated with the IMF and the European commission?

Here is the post-1989 ­European model: democratic states and free ­market ­economies, joined together in the framework of the EU, with a ­proclaimed commitment to ­intra-European ­solidarity, being stress tested in real time. There have been mass demonstrations, and even riots. There is pain and anger. Yet extremists remain at the margin, and I don't hear of a great groundswell of support for an alternative model of authoritarian capitalism à la Russia or China. This may change if things get even worse, but it still feels better to be Latvia in the EU than it was to be Latvia in the Soviet Union, or than it is to be, say, Tibet in China.

So far as I know, there are not many election posters on the streets of ­Beijing, let alone of Lhasa. The people cannot choose their representatives, except at a local level. But the Chinese system, as developed under a communist party that has consciously learned lessons from the collapse of communism in Europe and China's own crisis of 1989, has significant strengths of its own.

The state has built up huge foreign currency reserves, so much of the world is going begging to it, rather than vice versa. It has presided over extraordinary economic growth. Traumatised by the memory of Tiananmen, Beijing is constantly on the alert for signs of social discontent, and tries to preempt it by both long and short-term social and economic policies. Following the example of Deng Xiaoping, the true architect of today's People's Republic of China, this authoritarian regime is strikingly pragmatic in its policymaking. It allows a wide range of administrative experimentation across its provinces and cities, and successful experimenters are sometimes rewarded by promotion within the ruling party state. Its most forward-looking party thinkers propose reforms that would build the rule of law and include elements of limited democracy, though stopping well short of the free, nationwide, multi-party elections that are central to the European and American models.

Meanwhile, China's regime depends on what its supporters call "performance legitimacy", rather than "procedural legitimacy". This, of course, raises the 64 trillion-renminbi question of what happens if it ceases to perform – that is, to deliver economic and social improvements to enough of the people enough of the time.

Without free elections and a free press, it is impossible to know how much genuine popular legitimacy the Chinese government enjoys. Even the Chinese themselves cannot know what they would say, and how they would vote, if they had the chance to do so freely. But the evidence we have does suggest a good deal of genuine ­support for the system as it has evolved. And just anecdotally, for someone with ­experience of the last decades of the Soviet bloc, it is fascinating to be ­confronted in Beijing by young, bright and apparently idealistic students who are members of the communist party and argue the case for their system with passion and local detail.

Make no mistake: this system still depends on a far greater degree of ­coercion – that is, ultimately, violence – than is the case in either Europe or the US. I am not idealising it in any way. What any serious liberal would consider basic civil and political liberties are ­routinely violated, especially in the case of oppressed minorities. Even a ­privileged member of the urban elite will be locked up if he or she frontally challenges what a still Leninist party regards as essential to its rule.

And to be entirely clear: I believe in liberal democracy. My 4 June was a ­wonderful ­election, not a ­massacre. I believe we must now stand up again to defend liberal democracy in Europe against many threats, including crisis-fuelled ­populism and xenophobia sending votes to extremist parties such as the BNP in the European parliamentary elections. (So please turn out to vote). I think we need to renew our liberal democracy, as Americans are beginning to do under Barack Obama.

And I think that liberal ­democracy would be better for China too. ­Democracy's merits are not culture-bound. But what political system the Chinese develop must be a free and ­sovereign decision for them, approached by their own route, in their own time. We simply cannot know how China will be ­governed in another 20 years' time, and nor can they. After all, who guessed in 1969 what the world would be like by the end of 1989?

Meanwhile, there is nothing at all wrong with a peaceful competition of these systems. China is a mirror in which we can see the weaknesses of our own models; Europe and the US are mirrors in which they can see the weaknesses of theirs. Let this productive argument continue. Next report: 4 June 2010.